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Drug Makers Expect Hit from Medicare Drug Plan
By Susan Heavy,
Reuters Health
November 9, 2005
The new prescription drug benefit for Medicare beneficiaries is likely to hurt drug makers in the long term as insurers, pharmacies and elderly groups offering the plans seek greater discounts, top pharmaceutical executives said this week.
Drug makers had lobbied in favor of the addition to the government health-care program for the elderly and successfully convinced Congress not to include government-imposed prices. But at the Reuters Health Summit in New York, executives expressed concern.
"I think you're going to find there's increased pressure on rebates," GlaxoSmithKline Plc's Chris Viehbacher said at the Reuters Health Summit in New York. "Over time, I think it's going to be a slight negative for the industry."
Viehbacher, head of U.S. pharmaceuticals for the world's No. 2 drug maker, and other summit guests said the new plan would generate an initial boost to companies as many of the nation's elderly and disabled with no other way to pay for their medicines sign up for it.
"In the short term, I think this will increase access to some people who are not poor enough to be on Medicaid," the joint state-federal health insurance program for low-income patients, Eli Lilly Chief Executive Sidney Taurel told Reuters.
But about five years after the benefit takes effect in January, drug makers can expect pressure from health insurers, pharmacy benefit managers and others offering the plans as they seek lower prices to keep costs down and seniors enrolled, executives said.
"As we see the cost-containment methods being used by the private sector being now applied now to this Medicare business, I think those plans will extract higher and higher discounts from the industry," Taurel said.
He added that there were concerns that U.S. lawmakers may seek to curb the program or seek price controls in the face of the nation's budget deficit, which topped $318.6 billion in fiscal 2005.
The benefit is expected to cost $724 billion for the 10 years starting in 2006 -- far higher than the $400 billion the Bush Administration earlier said it would cost for 2004-2013.
Bristol-Myers Squibb Chief Executive Peter Dolan said he expected revenues to take a slight hit from the program.
"You could see in the beginning some modest positive benefit, but I think in a three-to-five-year time frame... what we modeled into our business is (a) neutral to slightly negative impact," Dolan said.
Dolan said the drug benefit is "a much better alternative to other alternatives that could have been considered."
The manufacturers will have to weigh whether they are getting enough sales to offset the discounts, Glaxo's Viehbacher said, and decide whether they want to keep participating. "For 2006 we see this pretty much as a wash, maybe a slight negative," he added.
Pfizer Inc. Chief Executive Hank McKinnell said the pressure to lower prices was manageable. "We're so far seeing kind of managed-care levels of discounts in the competing plans," he said. "... There will be price pressures to save money. We face that already."
The initial success of the voluntary program will depend on enrollment, which begins next week, executives said.
Leslie Norwalk, deputy administrator for the agency that runs Medicare and Medicaid, said marketing of the new benefit was going well as political controversy wanes, but added that the end result is difficult to predict.
"I have dampened optimism because I want to wait and see what happens in November," she said at the summit.
The companies had mixed views on whether sign-ups would meet Wall Street analysts' expectations that about 29 million of Medicare's 42 million beneficiaries will enroll.
With that participation level, the program would be "a tremendous success," Pfizer's McKinnell said. "I don't think they're going to get it."
(Additional reporting by Lisa Richwine)
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